Here’s a common situation: A B2B supplier sells a product/service, the customer is satisfied and really pleased with what they got, but the supplier doesn't receive payment.
As peculiar as it may seem, this is a common situation for accounts receivable (or billing and payment collection) teams. In this article, we will depict, at a high level, the process of getting paid. While we see this process as a simple one with three easy steps, companies and their finance teams, view billing and collection as a real nightmare with infinite steps and problems. And it shouldn't be a bad dream! Securing cash flow is crucial for businesses, and doing so should be an easy, fast, and even fun task for finance teams, which should be afforded more time to obtain insightful data about customers and propel the company to new heights.
Before we start, let’s remember the goal (the A/R team’s goal): getting paid.
3 simple steps to get invoices paid (or not...):
Issuing an invoice (actually, before issuance) - Issuing the invoice file is easy and can be done using any number of tools or even manually. The real issue here is to be 100% in sync with every customer about every invoice. Firstly, the particulars in the invoice must be totally clear, correct, and without typos: currencies, addresses, names, items - everything matters. Furthermore, the invoice must include specific details that differ from one customer to another. In many cases, the invoice must also correspond to a purchase order (PO) - an internal document from the customer about the order. Effect - Every aspect we have mentioned and more of the same can cause an invoice to be rejected, requiring the entire billing process to start over, sometimes 50-60 days after the original issuance. When purchasing, many companies assume the net terms will only start after a valid invoice has been sent to them. Errors can result in a 100-day invoice, even though its terms were 30 net.
Communicating with your customers and their accounts payable team - Although issuing an invoice can get messy, it is a relatively simple process. However, communicating with customers can be much more challenging. As companies grow, they employ an A/P department to take care of all supplier payments, with operations such as collecting invoices payable, paying suppliers, monitoring cash flow, and forecasting expenses. Communication with customers and their A/P teams can include problems with invoices, payment issues, inquiries about past actions, and more. The only sure thing about these communications is that each customer communicates differently, in some way. Effect - This task can be arduous for B2B suppliers and their A/R teams as they find themselves spending hundreds of hours working on many different communication channels such as emails, phone, WhatsApp, Telegram, WeChat, and, more recently, supplier/vendor portals that companies are starting to make their payments from. This creates a lot of work for the A/R team, causing them to suffer from busy-work (or “stupid” work) with dozens of different systems, most of which are outdated. The A/P software market is, in fact, exploding with many different SaaS providers offering software to digitize this area of business within companies (Divvy, Brex, Coupa, SAP Ariba, Tipalti, and hundreds of others).
Verifying payments / Cash application - Cash application is when the A/R team uses bank statements, payment statements from customers, and optionally, other data like “they said they paid on the phone” and similar, and then signs the invoice (the open A/R) as paid. This is where the process concludes, and everyone can breathe and go to sleep (not really, you still have 200 other open invoices!). First, the cash application specialists need to identify who the customer is. This could be by name, by the reference number the customer added (never happens), by the transaction amount, or by any other creative idea they can come up with. Next, they need to verify for which invoice the payment was made. Effect - Imagine you’re selling a subscription with the same amount each month to a group of customers. How do you know which invoice the cash should be applied to? This is a very complicated (and in the existing situation, sometimes impossible) process, involving numerous data sources from banks and customers. Again, the result is hundreds of hours of internal manual processes and unnecessary communications with customers who have already paid.
Money collection is a demanding task for B2B suppliers and their finance and A/R teams. BUT it shouldn’t have to stay that way. The process of getting paid is simple in concept, and with today’s technologies, there is support available for companies eager to streamline their processes. At Monto, we're excited to be at the forefront of making this complex, wasteful process a thing of the past.